How to Form an LLC (Limited Liability Company) in the USA?- Find out its Characteristics, Advantages & Disadvantages of an LLC & Procedure. Limited Liability Company in the USA (The United States of America) The business trend in the United States is ever-changing. Newmarket trends, modern technologies and government policies make a big contribution to the changing business trends in the USA. With the changing market environment over the years, there has been an emergence of new business structures from time to time. In this article let us talk about one of such business structures i.e. Limited Liability Company (LLC) in the USA. What is a Limited Liability Company (LLC)? Limited Liability Company i.e. LLC is a type of business structure that is a combination of a Corporation and a Partnership Firm. It is a business structure for Private Companies in the USA. LLC on one hand has the flexibility and tax benefits of Partnership Firms and Sole Proprietorships and on the other has limited liability status just like the Corporations. Characteristics and Important facts of an LLC in the USA \tThe owners of an LLC are called as "Members". \tThe rights and responsibilities of the members for managing the Limited Liability Company in the USA are governed by an operating agreement. \tAn LLC shall have to file a document called the Articles of Organization with the State Official, generally the Secretary of the State to get the legal status. \tThe Rules & Regulations of LLCs are different from state to state. \tThe members of an LLC can be any entity or individual other than banks and insurance companies. \tLimited Liability Company does not have to pay taxes on their profits directly. Instead, LLC's profit and losses are paid through the members who ultimately report them on their Individual Tax Returns. Advantages of Limited Liability Companies ( LLCs) in USA \tLimited Liability: The key reason business owners opt to register their businesses as Limited Liability Company is that their objective is to limit the personal liability of themselves and their partners or investors. \tFlexibility: It is a well-known fact that an LLC is a mixture of a Corporation having liability protections and a Partnership that is believed to be a simple business agreement between two or more owners and hence can choose between tax regime of various business structures such as sole proprietorships, partnerships, S corporations, or C corporations. Disadvantages of Limited Liability Companies ( LLCs) in the USA Limited Liability Companies, apart from having some attractive features, LLCs have several disadvantages as below: \tRegulations: As per the state law of the state where the LLC has been incorporated, an LLC may have to undergo dissolution if any of the members dies or goes bankrupt. \tTaxes and Fees: Though owners of an LLC benefit by avoiding double-taxation, they are required to pay self-employment taxes. These taxes ultimately are paid twice as the owner of the LLC is both the employee and the employer. \tSuitability: A Limited Liability Company may not be a suitable business structure if the founder's or owner's ultimate goal is to launch a publicly-traded company. Procedure to start an LLC in the USA / How to Start an LLC in USA? Select a State The first step towards starting an LLC in the United States is to select a state. It is advisable to start an LLC in a state that has no state taxes, so that one only has to manage US Federal Taxes. Although, if the business's objective requires you to have offices or have a physical presence in a particular state, then it would be a necessity for you to have an LLC registered in that particular state only. This avoids requiring to form an LLC as a foreign LLC and hiring registered agents in multiple states. Reserve the Name for your LLC in USA The next step for forming an LLC in USA shall be to reserve the name for your Limited Liability Company. For reserving a name for your LLC, you shall search your secretary of state’s business directory to ensure that the LLC name that you want for your business is original and not taken by any other LLC. Your Limited Liability Company (LLC) cannot have the same name as an already existing LLC in the state where you are filing. Hire a Registered Agent The third step towards LLC incorporation in USA would be to hire a Registered Agent who would be responsible for receiving and corresponding all the legal as well as tax-related documents on behalf of an LLC. Keep in mind at the time of appointing a Registered Agent that he must be a resident of the USA or a corporation authorized for carrying out any business transactions in the USA. File Certificate of Formation with Division of Corporations of the State The next step would be to file the certificate of Incorporation of an LLC with the Division of Corporations of the state. This Certificate can be filed either by one's own self online or via email. Once the Certificate of Formation of an LL is filed and accepted by the USA Division of Corporations, the LLC is considered to be officially incorporated. USA LLC Operating Agreement LLC OA (Operating Agreement) is not mandatory for a USA Limited Liability Company, but it is advisable to have one. An Operating Agreement is considered to be a legal document that states the provisions and rules of the ownership and operating procedures of an LLC. It reduces the risk of any future conflict between the business owners. Get an LLC EIN EIN stands for an Employer Identification Number which is a 9 digit number given by the Internal Revenue Service. Employer Identification Number is a Social Security Number for a business in the USA. An Employer Identification Number (EIN) is required for opening a business bank account, filing and managing Federal and State Taxes and also it is required while hiring employees. Know more: LLC Incorporation in Delaware. Documents required for LLC Incorporation in USA \tLegal Name of Partners \tPercentage of partnership for each partner \tA Certified Copy of Passport \tExisting Foreign Tax Id Number (Pan Card) \tOriginal Voter ID Card and Driving License (Incase Certified Passport is not available) FAQs on Limited Liability Company in the USA What is an LLC? Limited Liability Company i.e. LLC is a type of a business structure that is a combination of a Corporation and a Partnership Firm. It has a both flexibility of Partnership Firms and limited liability just like the Corporations. Are Limited Liability Companies Taxed Differently Than Corporations? Yes. While in a corporation system of "Double Taxation" prevails, i.e. to say that in Corporations first profits are taxed at the corporate level and then taxed a second time once those profits are distributed to the individual shareholders. LLCs, on the other hand, allow the profits to be passed directly to the investors so that they are taxed only once, as part of the investors’ personal income. How to start an LLC in the USA? Well, it is an easy process to start an Limited Liability Company in the USA. Following are the steps for registering an LLC in the USA: \tSelect a State and Reserve a name for your LLC \tHire a Registered Agent \tFile Certificate of Formation / Incorporation for LLC \tPrepare LLC Operating Agreement \tObtain LLC EIN In what state should I form an LLC? Usually, a Limited Liability Company is incorporated according to the requirements of the state laws, one has to decide what state his/her LLP should be formed and organized in. However, it is often seen that Delaware is chosen because of it's well-developed state law. Nonetheless, one should always choose a state for forming an LLC considering the factors like Fees, Filing Obligations and Complexities of the laws in the state.